A dull end to the week

Fri, 12 Mar Closing

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The broader indices managed to crawl their way towards the dotted line during the closing hours of trade. Lack of buying activity however, did not enable them to go higher anymore as they ended the day almost flat. The BSE Midcap and Smallcap indices on the other hand, closed marginally in the red today. On the Sensex, three stocks declined for every two that edged higher.

While Asian markets closed mixed today, Europe is witnessing buoyancy across all indices currently. The rupee was trading at Rs 45.4 to the dollar at the time of writing.

India's industrial output eased marginally in January from the December 2009 levels. It recorded a growth of 16.7% on a YoY basis as against 17.6% YoY growth recorded in the month of December. Thus, for the current financial year, the growth now stands at 9.6% YoY. The industrial sector, we should say, has filled in quite well for the subpar agricultural output of the country and has played a stellar role in ensuring that India's GDP manages to grow at a decent pace. Of course, the Government's stimulus measures also played their part in propping up the industrial sector. Going forward though, some amount of slowdown is likely to take place as higher prices on account of the recent budget measures could dent demand for goods. Furthermore, the threat of RBI hiking interest rates in order to tackle the rising inflation also looms large. All in all, looks like the 16%-17% growth that we have seen in recent few months could well be a thing of the past.

FMCG behemoth HUL was the biggest loser among the Sensex stocks today. Infact, the stock is believed to have closed at a 52-week low. Investor's disinterest is due to the ongoing war brewing in the detergents space between HUL and other multinational P&G and the impact of the same on the company's financials. HUL's most recent TV ad, which is really a very bold attempt, has quite openly made a declaration that its detergent product is superior to P&G's product in the same category. In what seems to be retaliation, P&G has gone ahead and increased the grammage of its product by 25% without lowering the price. Put differently, it has started offering a very aggressive price discount of 20%. HUL, which is already facing a lot of competition in some of the other segments as well, may also have to lower the price of its product, thus putting further pressure on its profitability. Investors seemed to have already factored this in their assumptions as evident from the fall in share price today.

Sugar stocks also suffered a setback today with leading players like Renuka Sugar and Balrampur Chini feeling the maximum heat. Infact, the entire sugar pack has lost in the region of 16% during the current week. And most of the weakness has to do with the fall in sugar prices in recent times. As per reports, sugar prices have declined by around 11% as a result of the supply glut in the physical market. Furthermore, India's production estimates of 16.8 m tonnes as against the earlier projected 16 m tonnes is also likely to take some pressure off the medium term outlook. Over the long term though, unless productivity increases significantly, demand would continue to come under pressure, leading to huge volatility in prices.